Shares in fund manager Magellan Financial Group Ltd (ASX: MFG) were rangebound today and trade more than 4% higher at $20.56.
Magellan shares have pared long-term gains and now trade deep in the red across all relevant time frames after a string of headwinds has plagued its manager performance lately.
What do the experts think? Let’s take a look at what analysts from leading investment firms are saying on the outlook for Magellan investors.
What is Morgans saying about Magellan’s outlook?
Morgans takes immediate note of UK based wealth management giant St James Place withdrawing its investment mandate from Magellan’s book, and also takes a balanced view of its outcome.
On the one hand, it notes the contagion risk for its flagship fund, however also notes that the withdrawal makes Magellan’s headline valuation look attractive.
Despite the optimism, however, Morgans remains unconfident on Magellan’s funds under management and the stability of its fees, saying that “medium term earnings risk are still present” in that regard.
Moreover, the risk of contagion or loss of another large institutional investor from St James Place’s exit is a real risk which investors must consider, Morgans says. This could impact retail outflows and force retail fee reductions, Morgans says.
In the end, the broker states that “we would avoid the stock until there is more certainty in the funds under management base and earnings outlook”.
It is neutral on the shares and values Magellan at $24.15 per share, in line with Jarden who have Magellan as a sell at $24.
Is Magellan a sell?
Meanwhile, Morgan Stanley says that Magellan’s bear case is finally playing out after St James Place’s exit, causing the broker to slash its price target by 40% to $17.50.
Morgan Stanley notes that a particular institutional client accounted for around 12% of Magellan’s annual revenues, and the broker is now worried about the lumpy revenues from other large clients.
It too recognises a threat to Magellan’s retail fees, which already sit at the highest amongst its peer group, and reckons a cut to Magellan’s 90%+ payout ratio is likely on the horizon. Morgan Stanley thinks Magellan is a sell.
UBS is also bearish, noting that St James Place’s withdrawal is a sign for broader concern. UBS notes that the institutional wealth manager accounted for 16% of Magellan’s funds under management, which could risk a follow on event.
UBS says that “with the stock down 33% on the news, investors are righty, in our view, factoring in broader contagion of institutional outflows”.
The investment bank itself forecasts $23 billion of net outflows over the next 2-3 years in its own modelling, according to the note.
UBS rates Magellan as a sell with these risks in mind on a valuation of just $17 per share.
Magellan share price summary
Magellan’s share price is down 64% in the past 12 months after falling another 63% this year to date. Over the past month is has extended losses and has plunged 43%, and has tanked more than 32% in the last week.